On the surface, it looked like one of those trends that would continue forward. As the ag retail industry entered the 21st century, one of the major buzzes among market watchers was the rapid rise of post-patent products and their eventual impact on the basic suppliers. Indeed, some analysts such as Harvest Consultant and Mike Buckley & Associates were speculating that by the end of 2007, post-patent products would make up approximately 80% of total crop protection product sales.
Given these projections for growth, CropLife® magazine was curious. Beginning with the 20th anniversary of our CropLife 100 survey in 2003, we started asking how many ag retailers within the CropLife 100 rankings were doing business with post-patent manufacturers. The numbers were incredible — 75% were, at that point. Through 2006, this percentage continued to climb — from 81% in 2004 to 86% in 2006.
Even more impressively, many of these same retailers viewed post-patent products as one of the major reasons for their crop protection product business spiraling downward in terms of profit margins. “The high percentage of generic product entries is causing price erosion,” wrote many a respondent on their CropLife 100 survey forms between 2003 and 2006.
Despite this fact, retailers continued to sell an increasing number of these products to their grower-customers without fail. The reason for this boiled down to one of giving the customer what he or she wanted. “Growers are no longer necessarily asking for brand names in their crop protection choices,” said Dave Coppess, vice president of sales and marketing for Heartland Co-op, West Des Moines, IA, in a 2005 interview with CropLife. “All they really want is a product that will help them get clean fields.”
A Bump In The Road?
Based upon this growth curve — coupled with the initial estimates for overall post-patent product market share — our staff expected the 2007 CropLife 100 survey to show post-patent product market penetration nearing the 90% mark, but certainly no lower than somewhere in the 80% range.
Surprisingly, this wasn’t the case. According to data from respondents, the percentage of CropLife 100 retailers doing business with post-patent products fell significantly last year — down 20% to 66%. Furthermore, market analysts expecting post-patent products to be the equivalent of 80% of total crop protection sales were way off the mark. Based upon the CropLife 100 data, generic brands represented only 22% of crop protection product revenue in 2007 among all ranked dealerships. There were, however, several CropLife 100 retailers with post-patent product percentages in the 50% to 60% range. One retailer even indicated that 75% of its 2007 crop protection product sales were generic.
Of course, these kinds of numbers beg a simple question — is the bloom off the post-patent rose? Not to be cliché, but the answer seems to be yes and no.
On the 2007 CropLife 100 survey form, we asked retailers a couple of follow-up questions regarding their post-patent product offerings. As for why these respondents are doing business with post-patent manufacturers when they perceive these products as “negatively impacting” their bottom lines, 72% indicated their grower-customers were “demanding” generics as an alternative to basic manufacturer supplied brands. Perhaps more surprisingly, 80% of those surveyed said that post-patent products offered a better opportunity for profit than basic manufacturer brands did.
While CropLife 100 retailers seemed pleased overall with the post-patent products themselves, the same couldn’t be said for the manufacturers of these brands. According to the survey, only 48% of the respondents said they “trusted” the generic companies with whom they do business. Interestingly, this is the same percentage of respondents that ranked the basic suppliers they do work with as “solid.”
Although it wasn’t reflected by a direct question within the survey, another reason for this sharp drop in post-patent product support among 2007 CropLife 100 retailers could stem from the companies themselves. After relative stability between 2005 and 2006 in terms of which ag retailers made the rankings, 2007 saw six new companies enter the list because of mergers and consolidations among existing players. Compared to the companies that vacated the CropLife 100, virtually none of the newcomers survey forms indicated that they handled post-patent products in their operations, thus depressing the overall percentage figure.
Making A Comeback?
Moving forward, the question now centers on if the 2007 post-patent product performance is a momentary pause on the road to prosperity or a reversal of fortunes. Based upon the evidence, it could be the latter. According to the 2007 CropLife 100 survey, 83% of respondents said that despite their grower-customers asking for generic products, they preferred to sell basic manufacturer brands instead. Of this group, 36% indicated they felt “strongly” about this business position.
Coupled with this view, basic manufacturers have apparently stepped up their efforts to protect their market shares within the ag retail community. This has included offering increased support and upgraded product offerings.
In his 2005 interview with CropLife, Heartland’s Coppess foresaw this kind of scenario playing out in the years ahead. He even predicted that today’s somewhat split marketplace would occur. “The branded folks will try to protect their market share at all costs, post-patent products will keep coming, and retailers will look to improve their bottom lines,” he said. “Eventually, a balance will be achieved.”